Compensating Farmers for the Tobacco Settlement

Legislative proposals designed to reduce smoking, primarily by teenagers, are likely to have negative economic consequences for tobacco growers and tobacco-dependent communities. This is because reduced cigarette consumption by Americans, particularly young Americans, and thereby decrease domestic demand for U.S.-grown leaf tobacco. This, in turn, likely will affect the value of tobacco marketing quotas held by farmers, and thereby the value of their land and holdings and their ability to obtain credit or contribute to local economies. For these reasons, there appears to be growing support for some kind of compensation to farmers as part of the settlement package legislation.

On the other hand, a consistent downward trend in domestic cigarette consumption, which some contend is likely to continue even without the tobacco settlement, argues against compensation. Compensation is not just an economic issue. Bill sponsors undoubtedly would like the support of Members of Congress from tobacco states and communities. Therefore, how much, if any, funds should go for compensation to growers is a political issue, as well. One obvious approach would be to estimate the likely losses to farmers under the various provisions and provide compensation on that basis. But, it is difficult to precisely estimate the potential economic consequences of the tobacco settlement for growers.